Lacker says Fed to weigh further QE taper at coming meetings

Federal Reserve policy makers will continue to weigh reductions to a bond-buying program aimed at stimulating growth because improvements in the job market are meeting the central bank’s objectives, Richmond Fed President Jeffrey Lacker said.

“We’ve seen a substantial improvement in a variety of indicators of labor market conditions, including the unemployment rate and the level of employment,” Lacker said today at a Maryland Bankers Association forum in Baltimore. “So it made sense to initiate the process of bringing the program to a close. I expect further reductions in the pace of purchases to be under consideration at upcoming meetings.”

Lacker is a non-voting member this year of the Federal Open Market Committee, which announced Dec. 18 that it will cut to $75 billion its monthly asset-purchase program starting this month, from $85 billion.

Speaking to reporters after his speech, he said economic data would have to be much weaker to warrant a slowing in the tapering pace and that he could see a case for a faster reduction in the bond-buying program.

Lacker told reporters that if growth picks up “significantly” in 2014, he could see the Fed raising its main interest rate later this year, though he could also see tepid growth “stretching it out.” The most likely scenario is for an increase in early 2015, he said. The federal funds rate has been near zero since December 2008.

2% Growth

In his prepared remarks, Lacker said he is predicting growth this year of about 2%, a level that’s “slower than in the past,” even as data at the end of 2013 showed the potential for an acceleration.

“The pickup in growth late last year is certainly a welcome development, and it may well be a harbinger of stronger growth ahead,” he said. “But experience with similar growth spurts in the recent past suggests that it is too soon to make that call.”

While consumer spending “seems to have surged early in the fourth quarter” last year, Lacker cited “persistent cautiousness” among consumers and said businesses “also appear to be quite reticent to hire and invest.” The federal government’s recent budget agreement is “welcome relief,” and lower odds of another fiscal showdown “may aid growth,” he said.

Lacker said he expects inflation that’s averaged 0.9% over the past 12 months will move back toward 2% in the next year or two, cautioning that “this is not a certainty” and the Fed will monitor it closely.

Lacker, 58, has been president of the Richmond Fed since August 2004. His turn in a rotation of voting members on the policy-setting FOMC comes in 2015.